WATCH OUT!: HOW TO OVERCOME PITFALLS WHEN SCALING YOUR BUSINESS

The adage “little kids, little problems; big kids, big problems” rings especially true for a growing PEO. From the very beginning, the most successful PEOs establish a solid foundation for growth, built on robust people management, efficient processes, strict regulatory compliance, and a balanced approach to business risks. By dedicating time, resources, and energy to the right areas, your PEO can sidestep common pitfalls and achieve sustainable, successful scaling.

YOUR PEOPLE

Staff members are the backbone of any organization. It is imperative to provide each with the tools to succeed. Best practices to help acquire, assess, foster and retain talent are the key to success.

Hire Ahead of Growth. Review your organizational structure and hire ahead of growth- per the NAPEO Financial Ratios & Operating Statistics Survey (FROS), the average PEO requires 7.4 internal employees for every one thousand worksite employees (WSE). Be prepared to add staff in anticipation of growing WSE counts. Remember that the statistics are merely guidelines and do not take into consideration items such as outsourcing, technology and service models. Homing in on where your PEO fits in these averages ahead of time will help prepare more accurately for the future.

Make Communication A Priority. As staff sizes and levels grow and with the increase in hybrid work, it is critical to tailor communication tools. There is a balance between too much and not enough communication. Find what fits your culture like periodic newsletters, and a cadence for regular team meetings. Also consider purchasing or upgrading collaboration systems such as MS Teams, Slack, or Guru.

Training and Development. Help staff become the best they can be. Ask yourself if each team member is in the right seat and if his or her vision aligns with corporate initiatives. It’s also important to make clear what is required of them through periodic reviews and KPIs. Lastly, be sure to recognize and reward their contributions. Coaching and mentoring programs offer critical support for growth. PEO specific training is often forgotten. It is important to stay on top of the ever-changing landscape of regulations and requirements. Leverage NAPEO resources including online resources, webinars, in person meetings and collaboration with peer members. Fund certifications such as PHR or APA, both initial certification as well as continuing education.

CLIENTS

Without clients we do not have a business. When growing your business, ensure promises made to your clients when they first join are kept. For maximum client satisfaction and retention, consider reviewing client touch metrics. What is the average response time? Has that increased over time? How can it be maintained? Also pay attention to what cadence clients are “touched.” Create metrics and be sure they are measured, while also considering surveying clients for feedback.

TECHNOLOGY

Investing in technology to keep up with the digital transformation can lead to efficiencies and allow employees to focus on client satisfaction. Consider whether the same systems that supported business needs at the PEO’s infancy are still relevant. Have competitor vendor solutions continued to evolve and provide enhancements that your current programs are missing? Review software systems such as payroll operations, payroll tax management, accounting, and CRM. Also assess automated intelligence (AI) solutions. Can AI increase productivity, save time or money without disrupting client service levels? Consider a working group to assess the possibilities specific to your PEO solutions, service level and budgetary needs. Also evaluate if it’s time to invest in APIs. EDI feeds help to streamline tasks, eliminate manual work and reduce errors. Review integrations for things like: banking, retirement plans, benefit plans, unemployment administration, ACA administration. Consider other areas where automation would be beneficial, too.

OPERATIONS
Look at operations through a fresh lens and be open to changes. Create or update the company mission statement and ensure it aligns with current values. Assess where outsourcing to or insourcing from third providers may be warranted. What is the ROI for either? Common outsourced solutions include: IT support, reconciliations, UI administration, ACA administration, and COBRA administration. As you grow, so may the need for certifications. While certain certifications (ESAC, CPEO, SOC reviews) could help with attracting new business, they also provide a level of comfort for owners or boards of directors.

Many startups or smaller PEOs are unable to offer PEO master plans. If the following are on your radar, start the process of courting potential carriers well in advance (sometimes years). Working with PEO centric brokers can help in these areas: Master medical, dental and vision health plans, ancillary health plans, employment practices liability insurance (EPLI), and retirement plans.

Assess if this is the right time to consider something other than a fully insured workers’ compensation plan such as a high deductible or self-insured program. Consult with a PEO broker to help assess. Leaning in here could help in competition, pricing, service and overall profitability.

FINANCE
The finance team is the central source for data and driving improvements as well as supporting sales growth. At this juncture, the finance team should focus on a few key areas.

Treasury Management. Is it possible to move ACH arrangements from a third-party provider to the bank? Focus on strengthening the banking relationship. Request ACH line increases or exceptions ahead of need, review fees, and inquire about new products and services such reverse wires and same day ACH.

Exploring Revenue Streams. Consider if it makes sense to change or simplify the current service model, pricing structure or number of PEO entities.

Sales. Review and tweak the current go-to-market strategy as appropriate. Assess internal or external sales quotas. Create referral programs. Expand geographical region or vertical.

Benchmark financial statistics against industry standards and best practices. The NAPEO FROS report is a great place to start. If you haven’t before, create a budget. If you are employing budgets, add a forecast and re-forecasting program.

COMPLIANCE
No one area is more critical to scaling a growing PEO than compliance. You should review and update the CSA to ensure it reflects the current service model, pricing, etc. Assess internal controls; have they been updated to encompass the changes that have occurred?

Be mindful of PEO licensing requirements. Are you operating in new states or with multiple entities? Many states require quarterly payroll tax review or audits, bonds and many other financial stipulations. Utilize the NAPEO regulatory database to help stay on top of these obligations. Update standard operating procedures (SOPs), be sure they are reflective of new tasks and processes. Understand the political and regulatory landscape and how it affects items such as I9 and E Verify, OSHA, FSLA, DOL audits of ERISA plans, and wage and hour position.

Each PEO embarks on a unique growth journey, shaped by its vision, goals, and challenges. By adopting a forward-looking mindset and implementing strategic planning, any PEO can achieve seamless scalability. This approach minimizes disruption for internal teams and clients alike, fostering sustainable growth, enhanced efficiency, and long-term success.